Mumbai: A small group of minority investors has been taking on Linde India, a listed company, for allegedly unfairly allocating a potentially lucrative business to its unlisted joint venture partner for almost five years. After much back and forth, these investors seem to have gotten some success.
The Securities Appellate Tribunal (SAT) directed Linde to cooperate with a valuation exercise the Securities & Exchange Board of India (SEBI) had ordered, which the company appealed against before multiple fora including the Supreme Court in September last year. The company did not get any relief from the court.
Linde India, a subsidiary of Linde Plc, is an industrial gases and engineering company. The minority investors particularly have concerns about Linde giving away, “without doing a proper valuation”, the hydrogen value chain business to Praxair India Private Limited (PIPL) when it signed a joint venture agreement with the latter.
“We all know it is not a small business. It is a gamechanger for de-carbonisation and as it turns out, it is a very important gas for semiconductors also. So, the entire hydrogen value chain is what they have carved out, from a listed company to an unlisted one, without doing a proper valuation, without taking any consent of any of us,” a minority investor, who is among the complainants to the exchanges and to the regulator, told ThePrint.
According to the SAT order dated 17 April, Linde India has to supply all information required for the valuation exercise within six weeks from the date of the order. The next hearing is in June.
The minority investors have also alleged Linde India’s failure in obtaining shareholder approval for material-related party transactions, considering PIPL was a ‘related party’ of Linde as globally Linde AG and Praxair Inc had merged in 2018 to create Linde Plc.
Minority shareholders constitute 25 percent of the company.
If these business allocation transactions as part of the joint venture are found to be material-related party transactions—that is more than 10 percent of sales in the year the joint venture agreement was signed—only minority shareholders can approve the arrangement.
In a statement to the exchanges last week, Linde India said, “The company is examining the next steps to be taken in this matter and is analysing the impact, if any, of this order on the company’s financial, operation or any other activities at the moment.”
“The aforesaid action is an interim direction given to the company by the Honourable Securities Appellate Tribunal in the appeal filed by the company.”
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The contentious joint venture agreement
Linde, formerly BOC India Ltd, has been listed on the NSE and BSE since June 1999. It is engaged majorly in two businesses—gases and related products, which includes the sale and manufacture of industrial, medical, special gases and related equipment; and project engineering that involves manufacturing and sale of cryogenic and non-cryogenic vessels as well as designing, supplying, testing, erecting and commissioning of projects across diverse industries.
This business was earlier a subsidiary of the BOC Group Limited, which was an unlisted UK-based company that was acquired by Linde AG, a German company, in 2006. BOC India eventually changed its name to Linde India Limited in February 2013.
In 2018, Linde AG merged with Praxair Inc, which too had a subsidiary in India, PIPL, which is mainly involved in the production and supply of various gases. So, after the merger, Linde Plc had two subsidiaries in India—Linde India Limited, a listed company in which it held 75 percent of the beneficial ownership, and PIPL which was a 100 percent step-down subsidiary.
SEBI’s interim order from April 2024 noted that following the Linde-Praxair global merger, promoters first tried to delist Linde India, but were not able to as the discovered price through the reverse book building process was significantly higher than the floor price that promoters indicated.
Promoters then started exploring other options for Linde India and PIPL, and chose the joint venture route in 2020.
In the joint venture intimation to the exchanges, Linde India said the board of directors had approved certain “common guidelines to ensure an aligned approach to markets”.
It said these guidelines were arrived at after considering the proximity to existing plants, incumbency, availability of technology, availability of plant configurations or suitable product lines and so on. The overlapping merchant air gas business of Linde India and Praxair India was geographically divided, it said.
It further said that the project engineering business was unique to Linde India, while the CO2 and HyCO business was unique to PIPL and so “these businesses will be pursued solely by the respective organisations”.
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Investor complaints and a year of appeals
After the announcement of the joint venture, SEBI started getting investor complaints alleging the business allocation decisions within the joint venture were not in the best interests of Linde India’s public shareholders. This prompted SEBI to start an investigation.
Responding to the complaint of one such investor to the NSE, Linde India had in a letter dated 2 November 2022 denied jeopardising any of its existing business due to the joint venture arrangement.
It said that the word “unique” was used in relation to the CO2 and HyCO (a mixture of hydrogen and carbon monoxide) business to show the “insignificance of the contribution of these two products towards the revenue of Linde India Limited”.
The company also said the arrangement is in context of the future business that will be undertaken by both companies.
Minority investors, however, rue that the joint venture arrangement was finalised without any valuation exercise that would also help determine if it’s a material related party transaction, requiring their explicit approval. They also lament that the business hived away by the listed company to its unlisted partner has immense scope for scalability, said an investor who did not wish to be named.
In April 2024, SEBI had issued in an interim order asked the NSE to appoint a valuer following investor complaints.
The company had appealed against SEBI’s decision to SAT, which in May 2024 set aside SEBI’s order. The company was granted an opportunity to be personally heard.
In an order in September 2024, SAT upheld the SEBI’s decision asking NSE to appoint a valuer, but added that the valuation information be kept confidential. Linde had then approached the Supreme Court but the company did not get any relief.
(Edited by Ajeet Tiwari)